Broke cities accuse Travelocity, Priceline and other sites of dodging local taxes

Are sites like Expedia, Priceline, and Travelocity only paying a fraction of the taxes they owe for hotel bookings? A lot of American cities think so.

Hotel web bookers such as Orbitz, Travelocity, Expedia, Priceline, and Hotels.com all buy hotel rooms at a wholesale price. When a customer like you or me buys a room through them, we're actually often paying a rate that's marked up from what the website originally paid to obtain it (but a rate that's still probably lower than what we'd have to pay if we did it on our own). That's how the sites make money.

As budgets tighten, cities have decided they don't like the current set-up. They get tax on the wholesale price that Orbitz & Co. are paying on the rooms, but they want tax based on the final, higher price paid by the guest. Count Broward County, Florida, which includes Fort Lauderdale and Wilton Manors, as the latest American destination to pig-pile on the internet travel sellers. Atlanta, Philadelphia, Miami, Houston, Los Angeles, San Antonio, and Chicago also want a piece of the tax action. Even a coalition of counties in Maryland and New Jersey, not normally known as a big tourism centers, are clamoring at the benches of the U.S. District Court for a ruling.

The websites don't want to open the books too wide on this one, partly because it will mean they will have to reveal the trade secrets of just how little they pay for those rooms and how much they jack up the rates we see. But so far, court rulings have not settled the matter. Last month, a U.S. Court of Appeals refused to hear the case brought by Pitt County, NC, which was interpreted as a victory for the dot-coms.

But some of the lawsuits are accusing the websites of charging tax on the higher, inflated rate when in fact they're only sending the cities the tax on the lower, wholesale price. If that's true, what's happening to the tax on that markup? It makes a difference, since it's estimated that online travel sellers accounted for 61% of travel booked these days.

It all boils down to what you believe the purchase price is in this case. Is it the one paid by the middle-men, or the one you paid when you reserved online? The online sellers contend that they're not the ones renting the rooms out, so they shouldn't have to remit the tax on their profit, which is essentially a service charge.

Not every tourist destination is complaining. Manatee Country, Florida, where Sarasota and Bradenton are, is perfectly happy with the current system. Why? Because it doesn't have many corporate hotels or conference centers, which are far more likely to discount for the websites and are therefore open to disputes over changing prices.

So what do you think? Should you be paying tax on what the room is essentially worth, on what the room price can be inflated to be? Is your city being cheated out of rightful tax income? In the end, it's your money we're talking about.